Economic diplomacy, Indian style

For a benign actor, India has had an energetic run on the foreign policy front in the last decade.

With a robust rate of economic growth under its belt, India’s master tacticians were not merely striking some remarkable deals — like the Indo-US Nuclear Agreement — and expanding diplomatic reach to the rest of the world.

In a major shift of gears, India was found playing the economic card — either by way of pledging billions of dollars as aid and soft loans or by entering into trade pacts — to serve the dual purpose of market access as well as strategic interests.

Most of these initiatives were aimed at bolstering, or safeguarding, country’s interests in economically important Africa, Europe and ASEAN regions. But India made two distinct attempts, in Afghanistan and neighbouring Bangladesh, to iron out anti-India sentiments through economic development and claim a stronger grip over regional geopolitics.

The medicine is not new. India used it successfully in Bhutan. The difference lies in scale, the volatile political climate in these countries and, their geopolitical importance.

And, the next couple of years will prove, how it shapes India’s geopolitical prospects in the region.

Af-Pak focus

True to its ‘Af-Pak’ focus, India has been more proactive in Afghanistan ever since the overthrow of Taliban, by US-led NATO forces, in 2000.

India built cultural bridges through prompt humanitarian aid (in the form of food and healthcare) and offered a large number of scholarships to Afghan students and others.

Significantly, it offered a $2 billion aid (approximately Rs 11,000 crore) to build key infrastructure projects, ranging from road, power, telecom and others.

India is not the largest donor in Afghanistan. But, it surely aims to reap the maximum harvest of the reconstruction programme, by helping the land-locked Afghanistan reduce its dependence on Pakistan (which does not enjoy the best of relations with Kabul).

This can be achieved by opening new trade routes through Iran.

India has already built a 218 km road connecting Afghanistan with Chabahar Port in Iran, located in close proximity to China-managed Gwadar port in Pakistan.

Another (rail) link is proposed to be opened from Bandar Abbas port in Western Iran to pave way for $11 billion Hajigak iron and steel project, promoted by Indian companies, in central Afghanistan.

Unknown Fruits

Theoretically, this is similar to Nepal’s initiative to reduce dependence on India by virtue of Lasha-Kathmanu ‘Friendship Highway’ (China is also building a rail link connecting Nepal), but is of greater significance.

Ideally, this spree of development activities should free Afghanistan from the stranglehold of the Taliban, which does not approve of Indo-Afghan friendship.

The initiatives should work in the interests of sanctions-hit Iran. India should get a strategic toehold to reach out to energy-rich West Asia, bypassing Pakistan. And, last but not the least, economic diplomcy should help India to rival China’s geopolitical ambitions.

The plan is grand. India is pursuing it for more than a decade. But, the fruits are yet to be tasted.

“What will happen, after the US combat forces pack their bags from Afghanistan, next year?” a former Indian diplomat to the UN was recently found asking. The discomfort is palpable and, not without reason.

For the moment, India has little option apart from reposing faith on its prudent use of soft power in a land that always retaliated against hard power.

Policy analysts on either side of the border are optimistic about India’s diplomatic success in Bangladesh, provided the present thrust of economic cooperation and diplomacy, initiated in 2010, continues, regardless of the political volatility in Bangladesh.

Look East

The reason behind is simple. For historic reasons, the two countries share a complicated relationship. And, unlike Pakistan, there is no central dispute.

This is but natural. For example, unlike on the West, India shares a highly fractured, yet the longest, boundary (running through water bodies or even courtyard of a house) on the East.

There are hundreds of settlements of either nation inside each other’s territory. And, nearly 50 or more perennial rivers originating in India end up in Bangladesh, leading to grievances on resource-sharing.

Add to this, there is always that element of anti-India rhetoric that queers the pitch from time to time.“Bilateral relations become a (game of) political football and brinkmanship,” says an analyst involved in Track-II diplomacy with Bangladesh.

On the brighter side, Bangladesh shares a common culture with parts of India and maintains trade ties that ($4.3 billion in 2011-12) which are is highly skewed India’s favour.

And, if one takes the parallel trade of goods (animal resource) and services (labour) into consideration, Bangladeshi economy is grossly dependent on its $1.8 trillion neighbour.

The need of the hour is to broad-base this economic integration to help Bangladesh share the fruits of Indian growth story.

Finally, India is doing that.

Creating common ground

Much of the discussion, on either side of the border, revolves around India’s grant of an $800 million extremely soft loan and $ 200 million aid in 2010; often unnoticed is a drastic change in India’s business attitude to Bangladesh.

Bangladesh is highly dependent on garments manufacturing – both for job creation and forex earnings – but failed to tap the vast market located next door due to India’s protectionist trade policies. In September 2011, India allowed import of a total of 61 items at zero duty. A vast majority of the items were related to textiles.

The decision is believed to have led to 35 per cent rise in exports of Bangladeshi ready-made garments to India during first seven months of 2012-13 and is expected shoot up in the days to come.

According to Prothom Alo , a Dhaka based daily, a preferential tariff facility has converted Bangladesh into a re-exporting hub for beetle nut, used by gutka makers in India.

Given India’s annual trade deficit of about $180 billion (in 2011-12), rising textiles and beetle nut import hardly makes any difference.

But for its neighbour -- who had been accusing India for contributing over to one-third of the $9-10 billion trade deficit (out of a $ 35 billion import bill) – it’s a new beginning.

It’s a new beginning for the bilateral relationship that should also try to mitigate issues on water sharing on the back of stronger economic ties.

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